401 Maximums

[Randall]

I understand that an employee is limited to the maximum $22,500 regardless of number or employers.  But is each employer limited to the maximum per all employers or is each employer allowed to conribute as an employer the maximum even if the total of all employers goes over the max?

[Gail in Virginia]

I am not sure that I understand what you are asking.  An employer is limited to contributing $22,500 for the employee and would have no way of knowing if another employer had contributed on behalf of that employee through a different plan.  Is that the question?  

[TexTaxToo]

I don't understand the question either, but the elective employee contributions are limited to $22,500 for 2023 (plus $7,500 catchup if age 50 or over).  That doesn't include employer matching contributions, which can be in addition to that.  The overall limit per participant was $66,000 for 2023.  I believe that applies to related employers but not necessarily unrelated employers.  Someone else can clarify.  There may be other limits for highly compensated employees or top-heavy plans.

[BulldogTom]

The 2023 total limit for contributions (employee + employer) to a 401K plan (assuming no top heavy restrictions) is $66,000 under age 50 or $73,500 over 50.  

The total contributions may not exceed the employees compensation for the year.   

Employees are limited to $22,500 (under 50) or $30,000 (over 50) of the amount contributed to the account.   

Tom
Longview, TX

[Randall]

To clarify a bit (I hope):  Employee contribution is limited to $22,500 (under age 50).  This would apply if employee had two or more employers.  As I understand it.  Employer contribution can be in addition to the employee contribution ($22,500) but over all limit is $66,000.  So my question is does this limit ($66,000) apply to each employer per employer or to both employers in total?  Of course, grand total limit is limited to employee's compensation (total of both employers).

Example:  Two employers, say compensation $100,000 each employer.  Employee can contribute $22,500 total.  100% one employer or half each but total of employee contribution cannot exceed $22,500.  Is the total limit of $66,000 (which would include employee's $22,500) per employer or total of both employers?

 

[Lee B]

Well, this question definitely pushes the creative envelope

[Randall]

1 hour ago, Lee B said:

Well, this question definitely pushes the creative envelope

Ha.  Plannning for a client in 2024.  His 2023 is a done deal and ok.

[Randall]

I've been putting off researching this while I'm getting my Engagement letters and organizers out.  But from what I looked at so far, it seems the total limit would apply to all employers.  Maximum annual additions, where annual additions include both employee and employer portions.  Examples I've seen only discuss the employee portion limit of $22,500.  But the overall limit is $66,000 (assuming compensation is at least that high).

[Medlin Software, Dennis]

SS WH, for instance, if someone earned enough to go over the limit at one job, then get/have another job in the same year, the second employer MUST still WH SS based on their own YTD for the employee. It is up to the employee to get credit/reimbursed.  Meaning there is nothing an employee can say to employer 2 to have them stop SS WH even if they have gone over the required amount for the year because of other employment.

I suspect retirement is similar in that one employer has no responsibility or ability to monitor any other employer, so in the case of retirement, if the plans allow, the employee can elect to manage their contributions/matches in such a way as to not go over the limit in total. If the employee goes over the limit, it is up to the employee to handle the issue, not the employers. Of course, the employee would be wise to contribute as much as they can if one has more matching funds, or to split it evenly if both have similar matching funds (as a kindness to both employers).

[DANRVAN]

12 hours ago, Randall said:

Plannning for a client in 2024.  His 2023 is a done deal and ok.

The limits were recently increased for 2024 per Notice 2023-75.

The total sec 415(c)(1)(A) annual addition, which is the sum of E'R and E'E contributions is $69,000 for 2024.

The E'E contribution limit under sect 402(g) for 2024 is $23,000.

 

14 hours ago, Randall said:

Is the total limit of $66,000 (which would include employee's $22,500) per employer or total of both employers?

The annual addition limited by 415(c)(1)(A) is per plan participant as I read, as long as the two employers are not related.

I am curious if you are planning for employee or employer?

[DANRVAN]

On 1/8/2024 at 8:12 AM, TexTaxToo said:

I believe that applies to related employers but not necessarily unrelated employers.

That is also my understanding, although I have not dealt in this situation.

[DANRVAN]

It sounds like the following would be true for an employee who switched jobs during the year:

If employee's annual addition was maxed out at $69,000 with first employer plan. Then he takes a job with an employer unrelated to the first. The employee cannot make any contributions to the new E'R plan for the year, but looks like 2nd employer could contribute the full $69,000 annual addition under his plan.  Maybe I am missing something?

[Randall]

9 hours ago, DANRVAN said:

The limits were recently increased for 2024 per Notice 2023-75.

The total sec 415(c)(1)(A) annual addition, which is the sum of E'R and E'E contributions is $69,000 for 2024.

The E'E contribution limit under sect 402(g) for 2024 is $23,000.

 

The annual addition limited by 415(c)(1)(A) is per plan participant as I read, as long as the two employers are not related.

I am curious if you are planning for employee or employer?

Both employee and employer, same person, two companies.  So they would be related employers.

[TexTaxToo]

If they are "related", it looks like reg § 1.414(c)-1 would apply:

Quote

For purposes ... relating to limitations on benefits and contributions under qualified plans ... employees of two or more trades or businesses under common control within the meaning of § 1.414(c)–2 for any period shall be treated as employed by a single employer.

 

[BulldogTom]

11 hours ago, DANRVAN said:

It sounds like the following would be true for an employee who switched jobs during the year:

If employee's annual addition was maxed out at $69,000 with first employer plan. Then he takes a job with an employer unrelated to the first. The employee cannot make any contributions to the new E'R plan for the year, but looks like 2nd employer could contribute the full $69,000 annual addition under his plan.  Maybe I am missing something?

That would be a huge loophole.   69K from second employer and 46K from first employer tax deferred until retirement?   115K total tax deferred, with no FICA tax withheld.   Something about this does not seem right....but I find a lot of things in the tax code that don't seem right.

Tom
Longview, TX

[Medlin Software, Dennis]

Without loopholes, where would the tax prep/interp/advice industry be?

[DANRVAN]

2 hours ago, BulldogTom said:

 would be a huge loophole.   69K from second employer and 46K from first employer tax deferred until retirement?

My example might be hypothetical but not unrealistic.  Let's say generous employer #2 had a plan where the full annual addition was funded by employer and new hire met requirements for the plan in first year (2024).  In that case it seems a $69,000 E'R contribution would be mandatory.

As Tex cited above, the 415(c) annual addition limit is not aggregated by unrelated employers.  So new hire is entitled to whatever amount is allowed by E'R #2 plan, whether it be the full $69,000 of another $46,000.

Also, the employee could have an unrelated side business with contributions to a solo 401(k).

2 hours ago, BulldogTom said:

Something about this does not seem right....but I find a lot of things in the tax code that don't seem right.

Sect 415(c) and 1.414(c)–2 look black and white to me.

[Terry D EA]

Just something to add to the mix. if the employee takes a different job and has already contributed the max, then he would not be able to make any contributions for the remainder of the year. So, most of the 401 plans that are an employer "match" why would the new employer make any contributions when they should well know the employee cannot? if the employer wanted to do so out of kindness, then it should be pertinenet for them to know how much the previous employer contributed.

[Medlin Software, Dennis]

5 minutes ago, Terry D EA said:

Just something to add to the mix. if the employee takes a different job and has already contributed the max, then he would not be able to make any contributions for the remainder of the year. So, most of the 401 plans that are an employer "match" why would the new employer make any contributions when they should well know the employee cannot? if the employer wanted to do so out of kindness, then it should be pertinenet for them to know how much the previous employer contributed.

Where do any employer regulations require the current employer to ask for data/information from the prior?  And the same, where are there directions/permission/rules allowing any former employer to share data with a different employer?  I have not looked myself... but your post makes it appear you know of such a rule. Assuming the limits are the limits, I suspect it is up to the employee to manage, not the employer (although the employer should be watching they do not exceed any limits on their contributions).

[DANRVAN]

2 hours ago, Terry D EA said:

then it should be pertinenet for them to know how much the previous employer contributed.

Why? What difference would that make if they are offering a generous benefit package to attract talented employee as allowed by the tax code?

 

2 hours ago, Medlin Software, Dennis said:

most of the 401 plans that are an employer "match"

Not all, and that is the point.  They could use non-elective contibutions as a means of E'R contributions. 

This is not just my opinion:

" non-elective contributions can not exceed the annual contribution limits the Internal Revenue Service (IRS) set ($58,000 annually in 2022)."     (note that information is outdated by two years)

per: https://401go.com/how-do-non-elective-401k-contributions-work/#:~:text=Non-elective plans give businesses,(%2458%2C000 annually in 2022).

[Terry D EA]

I based my response on the employee knowing the max contributions he has made. The employer would have no idea nor any reason to ask. My thinking was why would the employer contribute if they knew the employee was or would be maxed out. So forgive me for the misstatement.